Are Morgan Advanced Materials plc, InterContinental Hotels Group plc and Interserve plc buys or sells after today's updates?
Shares in Morgan Advanced Materials(LSE: MGAM) have risen by around 3% today after the advanced materials company released an upbeat update. Encouragingly, Morgan is trading in line with expectations following the first three months of its current financial year, with its transition to a new global structure having been successfully completed. And with sales being broadly flat compared to the same period of the prior year, Morgan seems to be performing relatively well in challenging trading conditions.
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Looking ahead, Morgan is forecast to report a fall in net profit of 8% for the full year. While this is disappointing, it's due to bounce back with growth of 6% next year and with the company's shares trading on a price-to-earnings (P/E) ratio of just 12.2 they seem to offer excellent value for money. Furthermore, Morgan's yield of 4.8% indicates that it remains a very appealing income play. With dividends being covered 1.7 times by profit, there's scope for a sustained rise in shareholder payouts even if profit growth proves to be somewhat lacklustre over the medium term.
Impressive result
Also reporting today was InterContinental Hotels(LSE: IHG) with it recording revenue per available room (RevPAR) growth of 1.5% at constant currency in the first quarter of the year. This is an impressive result against the backdrop of weak oil markets and the earlier timing of Easter, which affected several of InterContinental's key markets. And with the company increasing its global scale with 5,000 rooms opened and a further 15,000 rooms signed for within a pipeline of 220,000 rooms, it seems to be moving in the right direction.
With InterContinental forecast to increase its earnings by 10% this year and by a further 16% next year, investor sentiment could improve over the medium term. And since InterContinental trades on a price-to-earnings-growth (PEG) ratio of just 1.1, there seems to be plenty of scope for an upward rerating. Certainly, its yield of 2.5% isn't particularly appealing, but with dividends being covered twice by profit, there's scope for rapid rises in dividend payouts in future.
Contract issues
Meanwhile, shares in Interserve(LSE: IRV) have fallen by around 20% today after it announced a £70m exceptional contract provision will be taken in the first half of 2016 due to the further deterioration of the company's Glasgow energy from waste contract. The issues relate to the design, procurement and installation of the gasification plant, together with continuing challenges with the supply chain that will result in further cost overruns and delays. Although Interserve's balance sheet remains robust, the full impact of the contract provision will be to increase net debt by £35m.
Clearly, the news is extremely disappointing and Interserve's shares could come under further pressure in the short run. However, for long-term investors this could be an excellent opportunity to buy since the company's other divisions are performing well and its shares are now trading at their lowest level in around four years.
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Peter Stephens owns shares of Interserve. The Motley Fool UK has recommended Morgan Advanced Materials. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
